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United States Department of Agriculture

The Economic Impacts of U.S. Tariffs for Ethanol and Biodiesel

Office of Energy Policy and New Uses

Office of the Chief Economist

December 2017

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Authors

Michael Helmar

Stanley R. Johnson

Robert J. Myers

Jarrett Whistance

Harry Baumes

Michael Helmar is Research Manager, College of Agriculture, Biotechnology and Natural Resources, University of Nevada, Reno; Stanley R. Johnson is Board Chair, National Center for Food and Agricultural Policy, Washington, DC and Assistant to the Dean, College of Agriculture Biotechnology and Natural Resources, University of Nevada, Reno; Robert Myers is University Distinguished Professor. Michigan State University, East Lansing, Michigan; Jarrett Whistance is Program Leader, Biofuel Market and Policy Analysis at FAPRI, University of Missouri, Columbia, and Harry Baumes is Director, Office of Energy Policy and New Uses/Office of the Chief Economist/USDA. Washington DC.

Prepared under a Coop agreement with the OCE/USDA No. 58-0111-16-016.

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Disclaimers This study evolved from the second symposium of the Agricultural and Rural Energy Economics Symposium Series, entitled “Energizing the U.S. Economy: Rural America at the Epicenter of America's Energy Future.” The symposium series was developed in collaboration and under a cooperative agreement of the USDA’s Office of Energy policy and New Uses with the Council on Food, Agricultural and Resource Economics (C-FARE) (#58-0111-14-017). The views expressed in this publication are those of the authors and may not be attributed to the Federal Reserve Bank of Kansas City, the Federal Reserve System, the University of Wyoming, , Penn State University, Utah State University, the USDA Department of Agriculture (USDA), or USDA’s Economic Research Service, Office of the Chief Economist, and Office of Energy Policy and New Uses. Any remaining errors are those of the authors.

Use of commercial and trade names does not imply approval or constitute endorsement by USDA or C-FARE. In accordance with Federal civil rights law and U.S. Department of Agriculture (USDA) civil rights regulations and policies, the USDA, its Agencies, offices, and employees, and institutions participating in or administering USDA programs are prohibited from discriminating based on race, color, national origin, religion, sex, gender identity (including gender expression), sexual orientation, disability, age, marital status, family/parental status, income derived from a public assistance program, political beliefs, or reprisal or retaliation for prior civil rights activity, in any program or activity conducted or funded by USDA (not all bases apply to all programs). Remedies and complaint filing deadlines vary by program or incident. Persons with disabilities who require alternative means of communication for program information (e.g., Braille, large print, audiotape, American Sign Language, etc.) should contact the responsible Agency or USDA's TARGET Center at (202) 720-2600 (voice and TTY) or contact USDA through the Federal Relay Service at (800) 877-8339. Additionally, program information may be made available in languages other than English. To file a program discrimination complaint, complete the USDA Program Discrimination Complaint Form, AD-3027, found online at How to File a Program Discrimination Complaint and at any USDA office or write a letter addressed to USDA and provide in the letter all of the information requested in the form. To request a copy of the complaint form, call (866) 632-9992. Submit your completed form or letter to USDA by: (1) mail: U.S. Department of Agriculture, Office of the Assistant Secretary for Civil Rights, 1400 Independence Avenue, SW, Washington, D.C. 20250-9410; (2) fax: (202) 690-7442; or (3) email: program.intake@usda.gov. USDA is an equal opportunity provider, employer, and lender. December 2017

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The Economic Impacts of U.S. Tariffs for Ethanol and Biodiesel

1. Introduction

The biofuel industry has grown in importance and become a significant source of

demand for US agricultural feedstocks, primarily corn and soybeans. By 2016, US ethanol production had reached almost 59 billion liters, accounting for 52% of world output. In the same year, US biodiesel production reached 6 billion liters, accounting for 20% of world output. The US imports ethanol, primarily from Brazil, but since 2010 the US has been a net exporter. In recent years, US exports to the EU have been small due to trade restrictions, which have provided incentives for significant increases in EU domestic production. Brazil has exported small amounts of ethanol in years when large sugar crops have reduced sugar prices and made ethanol exports relatively more attractive. Argentina and Indonesia have increased their exports of biodiesel in recent years and the US has become a net importer of biofuel.

The US has imposed tariffs and restrictions on imports of biodiesel (until 2017)

and ethanol (continuing), and the level of protection and nations to which it applies have varied across time. Nevertheless, the economic effects of these trade restrictions has received little research attention to date. An early study used a partial equilibrium model calibrated to a single data point to conclude that the US ethanol tariff has a small impact on US ethanol prices, but increases the world price by almost the full amount of the tariff (de Gorter and Just, 2008). Another study, also using a calibrated partial equilibrium approach, but including ethanol feedstock markets in the model, found that removing the US ethanol tariff would have much larger effects, reducing domestic production by approximately 7% and US prices by approximately 14% (Elobeid and Topgoz, 2008). Several other studies have investigated the joint effects of US biofuel tariffs in combination with other biofuel subsidies and mandates (e.g., Babcock, 2012; Thompson, Whistance, and Meyer; 2011; de Gorter and Just, 2011; Cui, et. al., 2011). However, most of these studies use a model calibrated to a single data point and parameterized with assumed elasticities. In part, this is because sufficient data was not yet available to generate direct econometric estimates. Most existing studies have also focused on ethanol and not included biodiesel.

This paper has two goals. The first is to provide an up-to-date discussion of

trends and tariff policy issues in world biofuel markets. This discussion helps set the stage and provides context for the second goal, which is to provide quantitative estimates of the economic impacts of US import tariffs and antidumping duties applied in ethanol and biodiesel markets. The main innovation in our approach compared to past research is that we use a structural econometric model rather than a simulation model calibrated to a single data point. We also investigate biodiesel tariffs in addition to ethanol, and find that biodiesel tariffs now have more significant effects than the ethanol tariff. We have not been able to find any previous research that provides estimates of

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the economic effects of biodiesel tariffs. The estimates in our paper are also based on more, and more recent, data than those from previous research. This allows us to provide some new perspectives on the economic impacts of US biofuel tariffs.

Three main outcomes from tariff policy are investigated: (1) impacts on

production and consumption levels in the US and other major biofuel countries; (2) impacts on trade flows between countries; and (3) impacts on US and world biofuel prices. Knowledge of these effects is important for policy makers as they consider future changes to biofuel trade policy and evaluate the effects of historical policies.

A structural econometric model is used to estimate the effects of US biofuel tariffs. Specifically, we use the FAPRI (Food and Agricultural Policy Research Institute) model to estimate production, consumption, trade flows and prices in different countries under the historical US trade policy regime for biofuels. Then the model is simulated under the counterfactual situation where US tariffs are removed. Comparing results with and without the tariffs provides a quantitative estimate of their effects. The paper begins with a discussion of historical data on world production and trade in ethanol and biodiesel, along with a review of biofuel trade restrictions applied in different countries. This discussion provides background information on recent trends in world production and trade, and context for discussion of the quantitative estimates of tariff effects provided later. Then the FAPRI model is outlined and projection results are provided, followed by a discussion of policy implications of the results and major conclusions.

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2. A Brief Review of World Biofuels Production and Trade

Production of ethanol and biodiesel is concentrated in a small number of countries. The US and Brazil are the major ethanol producers, accounting for nearly 75% of the approximately 120 billion liters of current annual global output. The US alone produces about 50% of the world’s ethanol. Ethanol is consumed primarily in the countries where it is produced, and global trade is only 6-7% of world production (Figure 1).

In addition to being the primary ethanol producers, the US and Brazil dominate

global exports (Figure 2). Historically, the EU has been the main destination for ethanol exports. In recent years, however, the EU has become nearly self-sufficient in ethanol and other countries are beginning to import from the US and Brazil.

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Biodiesel production is also concentrated in a small number of countries. The

major producers are the EU and the US, with significant production also occurring in Brazil. For biodiesel, however, the major producing countries are not the major exporters. The biggest biodiesel exporters are Argentina, Indonesia, and Malaysia, none of which is a major producer (although production in those countries is increasing). Biodiesel is more widely consumed than ethanol, which results in 12-15% of global production being traded (Figure 3).

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The EU has used tariff and tax policies to support biodiesel production,

generating near self-sufficiency in biodiesel since 2013 (Helmar et. al. 2017). As a result, the EU no longer absorbs the majority of biodiesel exports, as it had done previously for many years. The US and a number of other smaller importing countries have taken over as major biodiesel importers. Argentina, Indonesia and Malaysia are increasing their biodiesel production but most of this production is for export rather than domestic consumption. These three countries account for a relatively small share of global production but have gained significant export market share (Figure 4). In the past decade, the US has transitioned from being the largest exporter of biodiesel to becoming the largest single importer during the past two years.

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Biofuels in the US

With the implementation of the Renewable Fuels Standard (RFS) in 2006, the US has become the largest single-country consumer of ethanol. Yet US ethanol production has increased even faster allowing the US to become more than self-sufficient, with exports exceeding imports since 2010 (Figure 5). The US does import ethanol in most years and for most of the past decade Brazil has supplied the majority of US imports (Figure 6). In recent years Brazil has captured nearly the entire US import market.

Brazil’s ethanol is from sugarcane which means their ethanol production

competes with sugar as an alternative product. The result has been that sugarcane production fluctuations result in more volatility in ethanol production than in sugar production (Figure 7) and, to a lesser extent, results in fluctuations in Brazilian ethanol supplies available for export. Additionally, changes in relative prices of ethanol and sugar shifts allocation of sugarcane from one product to the other, contingent on adequate capacity available to increase ethanol or sugar production.

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The US biodiesel market has expanded rapidly since 2011. Domestic production

of biodiesel doubled from 2011 through 2016 and yet the US transitioned from a net exporter to a net importer (Figure 8), due to a more than proportionate increase in domestic demand. US self-sufficiency fell from 110% to less than 80% by 2016. Yet the US still exports biodiesel. The traditional market for US biodiesel was the EU but EU tariff and tax policy has largely eliminated US access to that market (Helmar et. al., 2017). The US has found other buyers for its biodiesel, with the largest being Canada. However, US consumption growth has more than absorbed increases in US production and the US is now a net biodiesel importer.

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As US imports of biodiesel have risen since 2012, the primary exporters to the

US have been Argentina, Canada, and Indonesia (Figure 9). Argentina alone supplied nearly 65% of US imports in 2016. Biodiesel trade between Canada and the US nearly balances. Other Asian exporters, such as Indonesia and Malaysia, have also exported to the US. These Asian countries are palm oil producers and rapid production increases in recent years have resulted in expansion of their biodiesel production and exports.

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US Biofuel Import Tariffs

The US has imposed tariffs and trade restrictions against imports of both ethanol and biodiesel. Figure 10 provides estimates of revenues from tariffs on ethanol and biodiesel entering the US market from 2010-2016. The tariff for ethanol has been quite low at 2.5% and US imports of ethanol have declined since 2012. Hence, revenues have dropped to around only $3 million per year in 2016. With the small revenue stream expected from continued low imports, the budgetary value of maintaining the ethanol tariff in the face of administrative costs is questionable. Figures 5 and 6 show that the US is more than self-sufficient in ethanol, and that Brazil is the major exporter. As previously discussed, Brazil tends to export ethanol when world sugar prices are low or when sugar cane production is higher than expected. But US imports from Brazil are currently quite small and the tariff rate is only 2.5% so it seems likely the economic impacts of the US ethanol tariff have become minor.

US tariffs on biodiesel have historically been larger than on ethanol. The

estimates In Figure 10 assume the tariff rate the US applies to Argentine biodiesel (6.5%) is applied to all imports. This is an oversimplification because there have been different tariff rates applied to different countries. Biodiesel from Canada, for example, has no tariff due to the North American Free Trade Agreement. There are also slight tariff differences for other countries but since Argentina is the major exporter to the US we have used 6.5% for illustrative purposes. In 2016, the estimated US biodiesel tariff revenue was approximately $125 million.

There has been major controversy surrounding the “dumping” of biodiesel from

Argentina and Indonesia into the US market (Kotrba, 2017; Swift, 2017; Thompson, 2017). For Argentina, the dumping claim stems from different export taxes for soybean oil and biodiesel. Argentina currently collects a 6% tax on exports of biodiesel but in

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2016 the export tax on soybean oil was 27% (Figure 11). This effectively reduces the internal soybean oil price more than the biodiesel price. Since soybean oil is the feedstock used for Argentine biodiesel, this amounts to a sizable subsidy for biodiesel producers. However, the export tax on soybean oil is scheduled to fall from 32% in 2015 to 0% in 2022. If the tax falls according to the projected schedule the subsidy provided to Argentine biodiesel producers will disappear around 2020, eventually becoming an implicit tax (Figure 11).

Palm oil based biodiesel imported from Indonesia has a lower price than

biodiesel from other feedstocks because palm oil has a relatively low world price, which reduces production costs. However, palm oil based biodiesel is not a perfect substitute for US soybean based biodiesel because of its higher cold filter plugging point, which limits its use to warmer months and climates. Nevertheless, palm oil based biodiesel has made inroads into the US market. Indonesia imposes a variable export tax on crude palm oil and palm oil products (not including biodiesel). This export tax, like that in Argentina, acts as a subsidy for domestic biodiesel producers by effectively lowering the domestic price, and therefore the cost, of the feedstock. In addition, part of the export tax revenue is used to further subsidize biodiesel production. The level of the subsidy depends on the export tax rate, which is set by the Indonesian Government from month to month, and can vary considerably over time. Because Indonesian palm oil production has recovered from low levels two years ago, exports and export tax revenue are both expected to increase this year, providing increased funding for biodiesel export subsidies (Chow, 2017).

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Recently, the US International Trade Commission voted 5–0 to impose antidumping restrictions on both Argentina and Indonesia because of their subsidization of domestic biodiesel production. The duties will be from 50-64% on imports from Argentina and 41-68% on imports from Indonesia. These antidumping duties will likely eliminate the incentive for those countries to export to the US (Thompson, 2017; Swift, 2017). These developments illustrate the importance of understanding the economic effects of US biofuel tariffs and trade restrictions.

3. Empirical Results on the Impacts of US Biofuel Tariffs

The econometric model of world production, consumption and exports/imports of biofuels used for the analysis in this paper is based on the FAPRI model maintained at the University of Missouri (Debnath 2017). The model has a multimarket supply/demand structure that can be used to solve for world ethanol and biodiesel prices that clear international markets in each year. The supply sector consists of beginning stocks, production, and imports, while the demand sector includes domestic disappearance, exports and ending stocks. Ethanol and biodiesel production depend on the respective prices of ethanol and biodiesel, and domestic feedstock prices. Domestic disappearance depends on mandated consumption, petroleum prices, biodiesel and ethanol prices, and income. Imports and exports depend on relative international and domestic ethanol and biodiesel prices. The basic structure of the model takes the general form:

Capacity = f(biofuels price, feedstock price) Capacity Utilization = f(biofuels price, feedstocks price) Production = Capacity * Capacity Utilization Biofuel Use = f(ethanol/biodiesel price, gasoline price, mandates and GDP) Total Fuel Use = f(ethanol/biodiesel price , gasoline price, GDP) Anhydrous Ethanol Fuel Use = Blending mandates *Total Fuel Use Domestic Ethanol Disappearance = ethanol fuel use +other uses Stocks = f(biofuels prices, production) Exports/Imports = f(domestic biofuels prices, international biofuels prices, trade policy)

Stocks t-1 + Production + Imports = Domestic disappearance +Exports + Stocks

Figure 12 represents the main features of the FAPRI biofuel model for one country. Note that the tariffs and duties are represented as a wedge between international and domestic prices. With blending mandates, the domestic prices are then fed into biofuel use. Capacity and capacity utilization rates are also represented in Figure 1. Combining these equations then generates domestic production and utilization, along with beginning and ending stocks. Excess demand is calculated as the difference between demand and supply, giving the net trade position. Excess demand positions are then summed to give a global excess demand position. Global prices are then adjusted until the global market clears, leaving excess demand of zero and global market equilibrium.

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Capacity Capacity Utilization

Production Domestic utilization

Total fuel use Blending mandates

Supply

Beginning stocks

Ending stocks (t-1) Imports

Domestic disappearance of ethanol/ biodiesel

in blend

Ending stocks Exports

Domestic disappearance of 100% ethanol /

biodiesel

Price transmission

Tariffs & duties

International ethanol &

biodiesel price

Figure 12. Schematic representation of an individual market within the international biofuels model

Domestic price

Demand Market clearing

Supply = Demand

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The econometric model was used to project world biofuel market outcomes over the 2016-2021 period. Outcome variables of interest are production, consumption, trade flows, and prices for the major exporters (the US, Argentina, Indonesia, and Canada). First, a baseline scenario was projected where tariffs were set at the historical values that were used in the model for 2016 (the status quo). Next, an ethanol tariff elimination scenario was run where the ethanol tariff was set to zero but the biodiesel tariff remained at its baseline level. Finally, a biodiesel tariff elimination scenario was run where the biodiesel tariff was set to zero but the ethanol tariff remained at its baseline level. Comparing projected outcome variables under the tariff elimination scenarios to the baseline provides a quantitative estimate of the economic impact of the tariffs.

Other outcome variables may also be of interest. For example, concerns have been expressed about

negative side effects from the increase in biofuel production. These include food security issues, excessive water consumption, environmental concerns, and undesirable land use changes (e.g. Carter and Schaefer, 2015; Chen et. al., 2014; De Beer and Smith 2011; Earley, 2009; Hertel, Tyner, and Binur, 2010; Hoekman, 2009; Oladosu and Msangi, 2013; Searchinger et. al., 2008; Switzer and McMahon, 2011; and Tyner, 2013). We acknowledge these issues but they are not the subject of this paper. Here we focus on production, consumption, trade, and price effects of historical US tariff policies.

The descriptive analysis in Section 2 suggested that the US ethanol tariff is likely to have little effect over

the projection period because it is only 2.5% and ethanol imports into the US are now small. The econometric analysis supports this conclusion with only minor differences in key outcome variables with and without the 2.5% ethanol tariff. Because these effects are so small we do not report them here. The conclusion is that the US ethanol tariff could be eliminated with little impact on the US or world markets.

The effects of US biodiesel tariffs are more important. Table 1 reports projections with and without

biodiesel tariffs, as well as the projected differences between the two scenarios to isolate the effect of the tariff. Domestic US production of biodiesel is projected to be 3.5% lower by the end of the projection period (2021) without the tariff compared to the baseline, indicating the tariff provides a modest boost to the US domestic biodiesel production sector. However, US consumption is not affected by the tariff due to mandates. This leads to the projection that US biodiesel imports would be about 10% higher by 2021 without the tariff compared to the baseline, while US price would be 2.4% lower. The US biodiesel tariff has the expected effect of protecting domestic production, reducing imports, and increasing domestic prices. However, the domestic US production and price effects of the tariff are modest.

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Argentine exports are projected to be 2.1% higher by 2021 without the tariff compared to the baseline,

and the Argentine price would be 1.5% higher. These effects seem rather small for Argentina but occur because other exporters, in particular Indonesia, are also able to take advantage of the US tariff reduction. Indonesian imports are projected to be 7.7% higher by 2021 without the tariff compared to the baseline, and imports from other countries are projected to be 28.2% higher if the tariff is eliminated. So although the US biodiesel tariff is estimated to have modest price effects, the influence on imports and trade flows are projected to be proportionately larger.

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Table 1. U.S. Biomass-based diesel sector

Calendar year 2016 2017 2018 2019 2020 2021

(Million gallons)Production Baseline 1,907 2,011 2,132 2,236 2,288 2,292 Scenario change 0 -51 -48 -64 -72 -80 Percent change 0.0 -2.5 -2.2 -2.9 -3.2 -3.5

Domestic disappearance Baseline 2,431 2,759 2,833 2,966 3,016 3,056 Scenario change 0 -1 -1 0 1 0 Percent change 0.0 0.0 0.0 0.0 0.0 0.0

Net imports Baseline 551 762 709 734 731 765 Scenario change 0 50 47 64 73 81 Percent change 0.0 6.6 6.6 8.7 10.0 10.5

Prices ($/gallon)U.S. biodiesel rack Baseline 3.22 3.31 3.42 3.58 3.66 3.68 Scenario change 0.00 -0.10 -0.10 -0.09 -0.09 -0.09 Percent change 0.0 -2.9 -2.9 -2.5 -2.5 -2.4

Argentina, FO B Baseline 2.74 2.92 2.98 3.19 3.33 3.44 Scenario change 0.00 0.05 0.04 0.05 0.05 0.05 Percent change 0.0 1.6 1.4 1.7 1.6 1.4

ExportsArgentina Baseline 465 509 510 534 559 590 Scenario change 0 6 7 9 11 12 Percent change 0.0 1.3 1.4 1.8 2.0 2.1

Indonesia Baseline 108 257 272 296 286 304 Scenario change 0 7 8 14 19 23 Percent change 0.0 2.6 3.1 4.6 6.6 7.7

O ther Baseline 127 201 178 176 132 101

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Figure 13 provides more detail on the price effects of the biodiesel tariff. In the figure, US and Argentine

biodiesel price projections are compared graphically under the baseline and no tariff scenarios. Results indicate the US price would be lower and the Argentine price higher without the tariff, that the proportional price effect is greater for US prices compared to Argentine prices, and that neither effect is large in percentage terms (both prices change by less than 3%).

4. Policy Implications The US biodiesel tariff is projected to have minor impacts on US producers and consumers but more significant effects on exporters and trade flows. One factor that will influence future Argentine prices is the scheduled reduction in export taxes for soybean oil from 27% in 2016 to 0% in 2022. As the differential between biodiesel and soybean oil taxes declines, the implicit Argentine biodiesel production subsidy will also fall. Table 2 provides projected estimates of biodiesel subsidies resulting from the tax differential. By 2020, the soybean

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diesel producer subsidy provided by the tax differential disappears and if the soybean diesel export tax remains in place, Argentine biodiesel producers will eventually face an implicit tax.

After 2016, the $1 per gallon biodiesel tax credit for US blenders was eliminated. Table 2 shows that the

Argentine market protection provided by the export tax differential was about 50 cents in 2016. After the US tax credit was removed the biodiesel industry lobbied for, and was successful in obtaining, antidumping protection against Argentine and Indonesian biodiesel. If the $1 per gallon credit were to be restored, US subsidies would again be larger than those for Argentina and the rationale for protecting the domestic market would be severely weakened, if not eliminated.

Domestic US prices are lower as a result of imports from Indonesia and Argentina. As already mentioned,

Canadian imports and exports about cancel so the major price impact is on Argentine and Indonesian imports. With the elimination of US tariffs, net US imports grow by about 10 percent in 2021. Concern about the necessity for antidumping restrictions against Indonesia and Argentina seems a bit overblown from the viewpoint of price

Table 2. Argentina Soy-Based Biodiesel Subsidy

2016 2017 2018 2019 2020 2021 2022(dollars per gallon)

Prices, $/gal Soy diesel 3.22 3.31 3.42 3.58 3.66 3.68 3.72 Soybean oil 2.54 2.61 2.52 2.70 2.76 2.83 2.81

Export tax, % Soy diesel 6.0 6.0 6.0 6.0 6.0 6.0 6.0 Soybean oil 27.0 22.0 17.0 12.0 7.0 2.0 0.0

Export tax, $/gal Soy diesel 0.19 0.20 0.21 0.21 0.22 0.22 0.22 Soybean oil 0.69 0.57 0.43 0.32 0.19 0.06 0.00

Biodiesel subsidy $/gal 0.49 0.38 0.22 0.11 -0.03 -0.16 -0.22 Percent 15.3 11.4 6.5 3.0 -0.7 -4.5 -6.0

Source: FAPRI

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and trade impacts. Nevertheless, while global prices and trade patterns are not severely affected, the US biodiesel industry has been, and will continue to be, negatively impacted until trade barriers are dismantled by all trading nations.

Trade barriers, especially US antidumping restrictions, are unlikely to continue to be applied to Indonesia or Argentina. For Argentina, the antidumping restrictions are likely to become unnecessary with the reductions in benefits to biodiesel exports. Indonesia is a major consumer of biofuel and, in particular, biodiesel and their domestic demand is growing and likely to reduce Indonesian exports of biodiesel (Kharina, Malins, and Searle, 2016; Chow, 2016). The key implication from these results is that Argentina, Indonesia, and other exporters will increase exports to the US if US tariffs are eliminated, but the price effects are somewhat small. Furthermore, Argentine dumping will be less of an issue than it appears to be now because of the gradual reduction in their implicit subsidization of biodiesel production. 5. Conclusions

There are several key conclusions from this analysis. First, the US ethanol tariff now has only minor effects on the US and its trading partners. Hence, the ethanol tariff could be eliminated without major implications for US producers, consumers, or government revenues, and without major implications for ethanol trade flows.

The US biodiesel tariff is projected to have more important impacts. This tariff provides modest support for

domestic producers (domestic production estimated to be around 3.5% lower and domestic price around 2.4% lower without the tariff). However, the biggest proportional impact is on US imports which are estimated to be around 10.5% higher without the tariff. Hence, the tariff has effects on biodiesel exporters, particularly Argentina and Indonesia. Effects on Argentina are modest (exports estimated to be around 2.1% higher and price 1.4% higher without the US tariff) but the proportional influence on Indonesian exports (7.7% higher in 2021 without the US tariff) and exports from other countries (28.2% higher in 2021 without the US tariff) is more significant. Therefore, elimination of US biodiesel tariffs would have some important effects.

Argentine export tax changes are likely to have a major influence on US import tariffs on Argentine

biodiesel. Argentine export taxes on soybean oil feedstock are set to decline to zero by 2022, eliminating the implicit subsidy for biodiesel producers. This reduction would reduce Argentina’s export advantage and is

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already codified in the Argentine legal framework (and is therefore likely to occur). The decrease is linear and may soon alleviate the rationale for antidumping restrictions against Argentina. For this reason it seems likely that Argentina will soon challenge the US antidumping regulations, likely leading to elimination or reduction of US biodiesel tariffs against Argentina.

Elimination of the US biodiesel tariff would likely lead to major proportional increases in Indonesian and

Malaysian exports the US. However, the actual quantity imported to the US from these countries will be limited by the higher cold filter plugging point of palm oil based biodiesel, which limits the use of this biodiesel to warmer regions and months.

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